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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

|      |  |                                                                                
|----- |  | -------------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE    
|      |  | ACT OF 1934                                                                    
|     
|      |  | For the quarterly period ended September 30, 2002                              
|     
|[   ] |  | TRANSITION REPORT PURSUANT OR TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
|      |  | ACT OF 1934                                                                    
|     
|      |  | For the transition period __________ to __________                             

Commission File Number:    1-10916

INTERVISUAL BOOKS, INC.
(Exact name of registrant as specified in its charter)

|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 95-2929217
(I.R.S. Employer
Identification No.)

|                                                        |  |         
|------------------------------------------------------- |  | --------
|12910 Culver Boulevard, Suite C
Los Angeles, California |  | 90066   
|                                                        |  |         
|Address of principal executive offices                  |  | Zip Code

Registrants telephone number, including area code:    (310) 302-0600

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.           Yes [X]    No [   ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practical date. As of October 31, 2002,
there were 7,378,922 shares of common stock outstanding.





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TABLE OF CONTENTS



|                            |                                                                                               |                                            |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|                            |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                            |                                                                                               | STATEMENTS OF OPERATIONS                  
|                            |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                            |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                            | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION
|                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                 
|CERTIFICATION              
|EXHIBIT 99.1               
|EXHIBIT 99.2               



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##### Table of Contents



INTERVISUAL BOOKS, INC.

TABLE OF CONTENTS

|                               |  |         |  |                                                                                       |  |     
|------------------------------ |  | ------- |  | ------------------------------------------------------------------------------------- |  | ----
|                               |  |         |  |                                                                                       |  | Page
|                               |  |         |  |                                                                                       |  |     
|PART I - FINANCIAL INFORMATION |  |        
|                               |  | Item 1. |  | Consolidated Financial Statements                                                     |  |     
|                               |  |         |  | Balance Sheets  September 30, 2002, and December 31, 2001                            |  | 1   
|                               |  |         |  | Statements of Operations  Three and Nine months ended September 30, 2002
and 2001    |  | 2   
|                               |  |         |  | Statements of Cash Flows  Nine months ended
September 30, 2002 and 2001              |  | 3   
|                               |  |         |  | Notes to Financial Statements  September 30, 2002                                    |  | 4   
|                               |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 10  
|                               |  | Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 15  
|                               |  | Item 4. |  | Controls and Procedures                                                               |  | 15  
|PART II - OTHER INFORMATION    |  |        
|                               |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 17  
|SIGNATURES                     |  | 17     
|CERTIFICATIONS                 |  | 18     

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INTERVISUAL BOOKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |        |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----- | ----------- | ----- | -------- | ----- | ------ | ------ | -
|                                                                                                                                                                              |                                                                                                                                                            |                             |       | (unaudited) |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            |                             |       | 9/30/02     |       | 12/31/01
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |         
|ASSETS                                                                                                                                                                        |                                                                                                                                                            |                             |       |             |       |          |       |       
|Current Assets:                                                                                                                                                               |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              | Cash and cash equivalents                                                                                                                                  |                             | $     | 505         |       |          | $     | 1,266  |       
|                                                                                                                                                                              | Accounts receivable, less allowances
of $776 and $1,000                                                                                                    |                             |       | 4,368       |       |          |       | 2,032  |       
|                                                                                                                                                                              | Inventories                                                                                                                                                |                             |       | 1,799       |       |          |       | 1,341  |       
|                                                                                                                                                                              | Prepaid expenses                                                                                                                                           |                             |       | 198         |       |          |       | 271    |       
|                                                                                                                                                                              | Commission & royalty advances                                                                                                                              |                             |       | 129         |       |          |       | 74     |       
|                                                                                                                                                                              | Deferred income taxes                                                                                                                                      |                             |       |            |       |          |       | 250    |       
|                                                                                                                                                                              | Other current assets                                                                                                                                       |                             |       |            |       |          |       | 3      |       
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            | Total current assets        |       |             | 6,999 |          |       |        | 5,237  |  
|Production costs, net of accumulated
amortization of $21,232 and $20,329                                                                                                      |                                                                                                                                                            |                             | 2,643 |             |       |          | 2,944 |       
|Property and equipment, net of accumulated
depreciation of $1,151 and $1,131                                                                                                  |                                                                                                                                                            |                             | 79    |             |       |          | 57    |       
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            | TOTAL ASSETS                |       | $           | 9,721 |          |       | $      | 8,238  |  
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                |                                                                                                                                                            |                             |       |             |       |          |       |       
|Current Liabilities:                                                                                                                                                          |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              | Accounts payable                                                                                                                                           |                             | $     | 4,410       |       |          | $     | 6,144  |       
|                                                                                                                                                                              | Term loan with bank                                                                                                                                        |                             |       | 1,158       |       |          |       | 1,630  |       
|                                                                                                                                                                              | Line of credit with private party                                                                                                                          |                             |       | 1,025       |       |          |       | 660    |       
|                                                                                                                                                                              | Accrued royalties                                                                                                                                          |                             |       | 308         |       |          |       | 258    |       
|                                                                                                                                                                              | Accrued expenses                                                                                                                                           |                             |       | 234         |       |          |       | 279    |       
|                                                                                                                                                                              | Customer deposits                                                                                                                                          |                             |       | 189         |       |          |       | 166    |       
|                                                                                                                                                                              | Net liabilities on discontinued operations                                                                                                                 |                             |       |            |       |          |       | 427    |       
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            | Total current liabilities   |       |             | 7,324 |          |       |        | 9,564  |  
|Line of credit with private party, less current portion                                                                                                                       |                                                                                                                                                            |                             | 521   |             |       |          | 1,390 |       
|Other liabilities-long term                                                                                                                                                   |                                                                                                                                                            |                             |      |             |       |          | 25    |       
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            | TOTAL LIABILITIES           |       |             | 7,845 |          |       |        | 10,979 |  
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|Convertible preferred stock, shares authorized
3,000,000, Series A 1,825,397 authorized and
1,666,666 issued and outstanding at September 30,
2002; none at December 31, 2001 |                                                                                                                                                            |                             | 1,932 |             |       |          |      |       
|Option to purchase convertible preferred stock                                                                                                                                |                                                                                                                                                            |                             | 273   |             |       |          |      |       
|Stockholders Equity (Deficit):                                                                                                                                               |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              | Common stock, no par value; shares
authorized 12,000,000, shares issued and
outstanding 7,378,922 at September 30,
2002 and 6,031,490 at December 31, 2001 |                             |       | 6,329       |       |          |       | 5,471  |       
|                                                                                                                                                                              | Additional paid in capital                                                                                                                                 |                             |       | 1,246       |       |          |       | 806    |       
|                                                                                                                                                                              | Accumulated deficit                                                                                                                                        |                             |       | (7,904      | )     |          |       | (9,018 | )     
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            | TOTAL STOCKHOLDERS DEFICIT |       |             | (329  | )        |       |        | (2,741 | )
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       
|                                                                                                                                                                              |                                                                                                                                                            | $                           | 9,721 |             |       | $        | 8,238 |       
|                                                                                                                                                                              |                                                                                                                                                            |                             |       |             |       |          |       |       

See notes to consolidated financial statements.

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INTERVISUAL BOOKS, INC.
STATEMENTS OF OPERATIONS

|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |       |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------ | ----- | ----------------- | ---- | - | ----- | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|(In thousands except per share data)                                        |                                                                                                         | Three Months ended |       | Nine Months ended
|(Unaudited)                                                                 |                                                                                                         | September 30,      |       | September 30,    
|                                                                            |                                                                                                         |                    |       |                  
|                                                                            |                                                                                                         |                    | 2002  |                   | 2001 |   | 2002  |       | 2001
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |     
|Net sales                                                                   |                                                                                                         | $                  | 4,845 |                   |      | $ | 4,952 |       |      | $ | 10,486 |       |   | $ | 11,259 |      
|Rights income                                                               |                                                                                                         |                    | 5     |                   |      |   | 12    |       |      |   | 6      |       |   |   | 62     |      
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Total revenues                                                              |                                                                                                         |                    | 4,850 |                   |      |   | 4,964 |       |      |   | 10,492 |       |   |   | 11,321 |      
|Cost of sales                                                               |                                                                                                         |                    | 3,148 |                   |      |   | 3,763 |       |      |   | 6,591  |       |   |   | 8,296  |      
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Gross profit                                                                |                                                                                                         |                    | 1,702 |                   |      |   | 1,201 |       |      |   | 3,901  |       |   |   | 3,025  |      
|Selling, general and
administrative expense                                 |                                                                                                         |                    | 1,242 |                   |      |   | 1,011 |       |      |   | 3,553  |       |   |   | 2,965  |      
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Income from operations                                                      |                                                                                                         |                    | 460   |                   |      |   | 190   |       |      |   | 348    |       |   |   | 60     |      
|Interest expense                                                            |                                                                                                         |                    | (53   | )                 |      |   | (107  | )     |      |   | (172   | )     |   |   | (426   | )    
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Net income (loss) before extraordinary
income and discontinued operations   |                                                                                                         |                    | 407   |                   |      |   | 83    |       |      |   | 176    |       |   |   | (366   | )    
|Extraordinary income                                                        |                                                                                                         |                    | 0     |                   |      |   | 0     |       |      |   | 1,403  |       |   |   | 0      |      
|Discontinued operations (Note 9):                                           |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|                                                                            | Loss from discontinued operations                                                                       |                    |       | 0                 |      |   |       | (163  | )    |   |        | 0     |   |   |        | (210  | )
|                                                                            | Gain on disposal of video division                                                                      |                    |       | 0                 |      |   |       | 0     |      |   |        | 498   |   |   |        | 0     |  
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|                                                                            | Total gain (loss) on discontinued operations                                                            |                    |       | 0                 |      |   |       | (163  | )    |   |        | 498   |   |   |        | (210  | )
|Net income (loss) before income taxes                                       |                                                                                                         |                    | 407   |                   |      |   | (80   | )     |      |   | 2,077  |       |   |   | (576   | )    
|Provision for income taxes                                                  |                                                                                                         |                    | (250  | )                 |      |   | 0     |       |      |   | (250   | )     |   |   | 0      |      
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Net income (loss) after income taxes                                        |                                                                                                         |                    | 157   |                   |      |   | (80   | )     |      |   | 1,827  |       |   |   | (576   | )    
|Less: Beneficial conversion and option
value on convertible preferred stock |                                                                                                         |                    | 0     |                   |      |   | 0     |       |      |   | (713   | )     |   |   | 0      |      
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Net income (loss) available to
common shareholders                          |                                                                                                         | $                  | 157   |                   |      | $ | (80   | )     |      |   | 1,114  |       |   |   | (576   | )    
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|Income
(loss) per common share  basic:                                     |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|                                                                            | Income (loss) applicable to common
shareholders before extraordinary
income and discontinued operations |                    | $     | 0.02              |      |   | $     | 0.01  |      |   | $      | (0.11 | ) |   | $      | (0.06 | )
|                                                                            | Extraordinary income                                                                                    |                    | $     | 0.00              |      |   | $     | 0.00  |      |   | $      | 0.19  |   |   | $      | 0.00  |  
|                                                                            | Gain (loss) on discontinued operations                                                                  |                    | $     | 0.00              |      |   | $     | (0.02 | )    |   | $      | 0.07  |   |   | $      | (0.04 | )
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |       |  
|                                                                            | Net income (loss) available to
common shareholders                                                      |                    | $     | 0.02              |      |   | $     | (0.01 | )    |   | $      | 0.15  |   |   | $      | (0.10 | )
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |       |  
|Income
(loss) per common share  diluted:                                   |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|                                                                            | Income (loss) applicable to common
shareholders before extraordinary
income and discontinued operations |                    | $     | 0.02              |      |   | $     | 0.01  |      |   | $      | (0.11 | ) |   | $      | (0.06 | )
|                                                                            | Extraordinary income                                                                                    |                    | $     | 0.00              |      |   | $     | 0.00  |      |   | $      | 0.19  |   |   | $      | 0.00  |  
|                                                                            | Gain (loss) on discontinued operations                                                                  |                    | $     | 0.00              |      |   | $     | (0.02 | )    |   | $      | 0.07  |   |   | $      | (0.04 | )
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |       |  
|                                                                            | Net income (loss) available to
common shareholders                                                      |                    | $     | 0.02              |      |   | $     | (0.01 | )    |   | $      | 0.15  |   |   | $      | (0.10 | )
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |       |  
|Weighted average number of common
shares and equivalents outstanding:       |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|                                                                            | Basic                                                                                                   |                    |       | 7,379             |      |   |       | 6,031 |      |   |        | 7,199 |   |   |        | 5,982 |  
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      
|                                                                            | Diluted                                                                                                 |                    |       | 7,460             |      |   |       | 6,031 |      |   |        | 7,199 |   |   |        | 5,982 |  
|                                                                            |                                                                                                         |                    |       |                   |      |   |       |       |      |   |        |       |   |   |        |      

See notes to consolidated financial statements.

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INTERVISUAL BOOKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)

|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |      |       |       |       | 
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------- | --------------------------------------------------- | ------ | ------------------------------ | ------ | ---- | ----- | ----- | ----- | 
|                                                   |                                                                                                    |                                                     |                      |                                                     |        | Nine Months Ended September 30
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                               
|                                                   |                                                                                                    |                                                     |                      |                                                     |        | 2002                           |        | 2001
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|Cash flows from operating activities:              |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   | Net income (loss)                                                                                  |                                                     | $                    | 1,827                                               |        |                                | $      | (576 | )    
|                                                   | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                                     |                      |                                                     |        |                                |        |      |      
|                                                   |                                                                                                    | Depreciation and amortization                       |                      |                                                     | 923    |                                |        |      | 1,219 |      
|                                                   |                                                                                                    | Provision for losses on accounts receivable         |                      |                                                     | 97     |                                |        |      | (14   | )    
|                                                   |                                                                                                    | Provision for abandoned titles                      |                      |                                                     | 30     |                                |        |      | 30    |      
|                                                   |                                                                                                    | Deferred income taxes expenses                      |                      |                                                     | 250    |                                |        |      |       |      
|                                                   |                                                                                                    | Discontinued operations                             |                      |                                                     | (841   | )                              |        |      | (202  | )    
|                                                   |                                                                                                    | Extraordinary income  printer discounts            |                      |                                                     | (1,403 | )                              |        |      |      |      
|                                                   |                                                                                                    | Increase (decrease) from changes in:                |                      |                                                     |        |                                |        |      |       |      
|                                                   |                                                                                                    |                                                     | Accounts receivable  |                                                     |        | (2,432                         | )      |      |       | (289  | )    
|                                                   |                                                                                                    |                                                     | Inventories          |                                                     |        | (458                           | )      |      |       | (380  | )    
|                                                   |                                                                                                    |                                                     | Prepaid expenses     |                                                     |        | 72                             |        |      |       | (148  | )    
|                                                   |                                                                                                    |                                                     | Royalty advances     |                                                     |        | (55                            | )      |      |       |      |      
|                                                   |                                                                                                    |                                                     | Other current assets |                                                     |        | 3                              |        |      |       | 174   |      
|                                                   |                                                                                                    |                                                     | Accounts payable     |                                                     |        | 127                            |        |      |       | 1,507 |      
|                                                   |                                                                                                    |                                                     | Accrued royalties    |                                                     |        | 51                             |        |      |       | 27    |      
|                                                   |                                                                                                    |                                                     | Accrued expenses     |                                                     |        | (45                            | )      |      |       | (18   | )    
|                                                   |                                                                                                    |                                                     | Customer deposits    |                                                     |        | 23                             |        |      |       | (6    | )    
|                                                   |                                                                                                    |                                                     | Other liabilities    |                                                     |        | (25                            | )      |      |       | (41   | )    
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   |                                                                                                    |                                                     |                      | Net cash provided by (used in) operating activities |        |                                | (1,856 | )    |       |       | 1,283 | 
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|Cash flows from investing activities:              |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   | Additions to property and equipment                                                                |                                                     |                      | (42                                                 | )      |                                |        | (24  | )    
|                                                   | Additions to production costs                                                                      |                                                     |                      | (633                                                | )      |                                |        | (837 | )    
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   |                                                                                                    | Net cash used in investing activities               |                      |                                                     | (675   | )                              |        |      | (861  | )    
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|Cash flows from financing activities:              |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   | Proceeds from investor                                                                             |                                                     |                      | 1,932                                               |        |                                |        |     |      
|                                                   | Repayment to bank line of credit                                                                   |                                                     |                      | (472                                                | )      |                                |        | (250 | )    
|                                                   | Repayment to Zindart line of credit                                                                |                                                     |                      | (104                                                | )      |                                |        | (300 | )    
|                                                   | Proceeds from sale of video division                                                               |                                                     |                      | 414                                                 |        |                                |        |     |      
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   |                                                                                                    | Net cash provided by (used in) financing activities |                      |                                                     | 1,770  |                                |        |      | (550  | )    
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|Net decrease in cash and cash equivalents          |                                                                                                    |                                                     | (761                 | )                                                   |        |                                | (128   | )   
|Cash and cash equivalents, beginning of period     |                                                                                                    |                                                     | 1,266                |                                                     |        |                                | 396    |     
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|Cash and cash equivalents, end of period           |                                                                                                    | $                                                   | 505                  |                                                     |        | $                              | 268    |     
|                                                   |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|Supplemental disclosures of cash flow information: |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   | Cash paid during the period for interest expense                                                   |                                                     | $                    | 224                                                 |        |                                | $      | 392  |      
|Non-cash financing:                                |                                                                                                    |                                                     |                      |                                                     |        |                                |        |     
|                                                   | Beneficial conversion and option value of convertible
preferred stock                              |                                                     | $                    | 713                                                 |        |                                | $      |     |      

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

Note 1  Statement of Information Furnished

In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position as of September 30, 2002,
and the results of operations and cash flows for the three and nine month
periods ended September 30, 2002 and 2001. These results have been determined
on the basis of accounting principles and practices generally accepted in the
United States of America and were applied consistently with those used in the
preparation of the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2001. The results of operations for the three and nine
month periods ended September 30, 2002, are not necessarily indicative of the
results to be expected for any other period or for the entire year.

Certain information and footnote disclosures normally included in financial
statements presented in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. The
accompanying financial statements should be read in conjunction with the
Companys audited financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2001.

At December 31, 2001, Fast Forward Marketing (FFM) was classified as a
discontinued operation and all prior periods have been restated. The sale of
FFM was completed on April 8, 2002. (See Note 9.)

Note 2  Liquidity

In January 2002, the Company completed a convertible preferred stock financing
(See Note 4) which raised cash totalling $2,100,000, net of costs to raise the
capital of $168,000 for net proceeds of $1,932,000. Under this agreement, the
company issued 1,666,666 shares of its Series A convertible preferred stock.
During the first six months of 2002, the Company negotiated a reduction in its
subordinated debt totalling $400,000 (See Note 8) and received discounts on
accounts payable of $1,403,000 (See Note 6). As of September 30, 2002 the
Companys indebtedness with its bank was $1,158,000. The Company was also in
compliance with the financial covenants on this term loan.

On December 31, 2001 the Company signed an amendment to the Zindart Loan and
Security Agreement, which was contingent upon the closing of an equity
investment by January 31, 2002, under which Zindart would allow $400,000 (See
Note 8) of the outstanding balance to be converted to common stock of the
Company. This contingency was met and the Company recorded the conversion in
January 2002. Additionally, under this amended agreement, Zindart will cancel
$400,000 of the outstanding principal loan in the quarter ending September 30,
2002, based upon the Companys satisfactory payment performance. The Company
expects this $400,000 in principal to be cancelled in the quarter ending
December 31, 2002 upon the issuance of the common stock. Under this agreement
there has been a change in the repayment terms, commencing August 31, 2002, the
remaining balance of $1,250,000 (after taking into consideration the conversion
and cancellation) will bear interest at 5% above LIBOR and will be repaid in 24
equal installments, with final payment due on July 31, 2004. (See Note 11.)

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As of September 30, 2002, the Company has a cash balance of $505,000 and
reported net income before beneficial conversion and option value on
convertible preferred stock of $1,827,000 for the nine months ended September
30, 2002. At September 30, 2002, working capital deficit was ($325,000)
compared to ($4,327,000) at December 31, 2001.

Subsequent to the quarter ended September 30, 2002, the Company signed a credit
and security agreement with Wells Fargo Business Credit, Inc. whereby the
Company will be provided with a $2,500,000 revolving line of credit secured by
the assets of the Company. (See Note 11.)

Note 3  Income (Loss) Per Common Share

The Company computes income (loss) per common share under SFAS No. 128,
Earnings Per Share, which requires presentation of basic and diluted earnings
(loss) per share. Basic earnings (loss) per common share is computed by
dividing income or loss available to common shareholders by the weighted
average number of common shares outstanding for the reporting period. Diluted
earnings (loss) per common share reflects the potential dilution that could
occur if securities or other contracts, such as stock options, to issue common
stock were exercised or converted into common stock. Included in the shares
outstanding and the weighted average number of common shares at September 30,
2002, were 1,269,842 shares to be issued to Zindart Limited, as a result of
debt and payables being converted into common stock per the financial
statements. Pursuant to the Amendment to Zindart Loan and Security Agreement
dated December 31, 2001, the Company will issue these shares once its Articles
of Incorporation are amended to increase its authorized capital stock. The
weighted average share portion of 1,125,647 shares was included in the weighted
average shares for the nine month period to calculate the income (loss) per
share. The following calculates the income (loss) per share available to
common shareholders:

|                                                                        |  |                    |       |                    |  |        |       |           |  |   |       |   |  |  |       |  
|----------------------------------------------------------------------- |  | ------------------ | ----- | ------------------ |  | ------ | ----- | --------- |  | - | ----- | - |  |  | ----- | -
|For the nine months ended:                                              |  | September 30, 2002 |       | September 30, 2001
|                                                                        |  |                    |       |                   
|                                                                        |  | Amount             |       | Per Share          |  | Amount |       | Per Share
|                                                                        |  |                    |       |                    |  |        |       |          
|Net income (loss) before
extraordinary
item and discontinued operations |  | $                  | 176   |                    |  |        | 0.02  |           |  | $ | (366  | ) |  |  | (0.06 | )
|Beneficial conversion and option
value on convertible preferred stock   |  |                    | (713  | )                  |  |        | (0.10 | )         |  |   | 0     |   |  |  | 0.00  |  
|                                                                        |  |                    |       |                    |  |        |       |           |  |   |       |   |  |  |       |  
|                                                                        |  |                    | (537  | )                  |  |        | (0.08 | )         |  |   | (366  | ) |  |  | (0.06 | )
|Extraordinary income                                                    |  |                    | 1,403 |                    |  |        | 0.19  |           |  |   | 0     |   |  |  | 0.00  |  
|Gain (loss) on discontinued
operations                                  |  |                    | 498   |                    |  |        | 0.07  |           |  |   | (210  | ) |  |  | (0.04 | )
|Provision for income taxes                                              |  |                    | (250  | )                  |  |        | (0.03 | )         |  |   | 0     |   |  |  | 0.00  |  
|                                                                        |  |                    |       |                    |  |        |       |           |  |   |       |   |  |  |       |  
|Net income (loss) available to
common shareholders                      |  | $                  | 1,114 |                    |  |        | 0.15  |           |  | $ | (576  | ) |  |  | (0.10 | )
|                                                                        |  |                    |       |                    |  |        |       |           |  |   |       |   |  |  |       |  
|Weighted average number of
common shares                                |  |                    | 7,199 |                    |  |        |       |           |  |   | 5,982 |   |  |  |       |  
|                                                                        |  |                    |       |                    |  |        |       |           |  |   |       |   |  |  |       |  

Note 4  Preferred Stock

On December 31, 2001, the Company signed a financing agreement with Intervisual
Partners LLC to issue up to 1,825,397 shares of Series A convertible preferred
stock for an aggregate purchase price of

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$2,100,000 of cash. This financing agreement had several contingencies and was
subject to two closings. The cash was received in two closings, the first
closing was on January 8, 2002 upon which the Company received $500,000 and the
second closing was on January 31, 2002 upon which the Company received
$1,600,000. Following the first and second closings, 396,825 and 1,269,841
shares, respectively, of convertible preferred stock were issued. The
preferred stock is convertible at an initial price of $.63 subject to
adjustments based on the agreement. In connection with this agreement,
Intervisual Partners LLC was entitled to appoint a majority of the Companys
Board of Directors. The Company recorded a beneficial conversion on the
convertible preferred stock of $440,000. This amount was recorded as a deemed
dividend and is included in earnings per share. The preferred stock agreement
has a clause which requires the Company to issue up to 158,730 additional
shares depending on the final adjusted audited loss for the year ended December
31, 2001. The Company is currently evaluating the number of shares required to
be issued. Intervisual Partners LLC also has the option to purchase up to an
additional 2,049,804 shares of Series A preferred stock at a purchase price
ranging from $1.26 to $1.32. The Company valued this option at $273,000 and
recorded it as a deemed dividend. Finally, Intervisual Partners LLC received a
warrant to purchase additional shares of the Companys common stock. The
number of shares which Intervisual Partners LLC shall be entitled to purchase
upon exercise of the warrant shall be determined in five separate tranches; one
tranche at each of the next five anniversary dates of the First Closing. The
number of shares Intervisual Partners LLC shall be entitled to purchase under
each warrant is determined by dividing (i) an amount equal to eight percent
(8%) of the aggregate purchase price paid by Intervisual Partners for the
shares of the Companys Series A Preferred Stock acquired by Intervisual
Partners which are then still held of record by Intervisual Partners on the
applicable Anniversary Date, by (ii) the exercise price which is the average of
the bid and asked price for such common stock reported for a period of thirty
(30) trading days immediately before each applicable Anniversary Date. The
exercise price with respect to the common stock issuable upon the exercise of
each tranche of the Warrant will be determined in five separate tranches, one
tranche at each of the Anniversary Dates, and shall be equal to eighty percent
(80%) of the fair market value of one share of common stock on the applicable
Anniversary Date. The Company will value these warrants at the time the
tranche is granted.

Note 5  Equity

On December 31, 2001, the Company signed the Amendment to Zindart Loan and
Security Agreement with Zindart Limited (See Note 8) which, upon closing of the
preferred stock financing transaction, provided for $400,000 of the principal
balance of the loan and $400,000 of the payables of HuaYang Printing, a
wholly-owned subsidiary of Zindart, to be converted to 1,269,842 of the
Companys common stock shares, based on $.63 per share. As discussed in Note
3, these shares are to be issued once its Articles of Incorporation are amended
to increase its authorized capital stock. These shares have been included in
the outstanding shares.

Note 6  Extraordinary Income

During the nine months of 2002, the Company finalized negotiations with its
major printers and recorded $1,403,000 in income relating to discounts on the
printers accounts payable balances. This amount is classified as an
extraordinary item and excluded from loss from continuing operations.

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Note 7  Term Loan With a Bank

As of December 31, 2001, the Company signed an amendment to its bank loan
agreement. Under this amendment, the Company paid a principal payment of
$500,000 on December 31, 2001 and agreed to an increase in monthly principal
payments to $25,000 per month. Under this amendment, the outstanding principal
amount is due on December 31, 2002 and certain financial covenants were
amended. On March 22, 2002, this Company was notified that its bank loan
agreement had been assigned to Linc Acquisition One, LLC. On April 4, 2002,
the Company signed a Consent and Waiver Agreement with the lender giving it
authorization to complete the sale of the Companys video division, Fast
Forward Marketing. Under this agreement, the Company on April 8, 2002 paid the
Lender $175,000 as a reduction to its outstanding indebtedness. This agreement
also requires that as the Company is paid additional cash from the collection
of FFMs receivables; it will pay the Lender 45% of each dollar received up to
a maximum of $112,500 (See Note 9). As of September 30, 2002, the Company has
paid the Lender $71,706 from the collection of FFMs receivables. As of
September 30, 2002, the Company had an outstanding indebtedness of $1,158,000
and was in compliance with all financial covenants. (See Note 11.)

Note 8  Credit Facility with a Zindart Limited (Zindart)

The Company has a subordinated credit facility with Zindart Limited. The
credit facility is subordinated to the term loan discussed in Note 7 and is
secured by the Companys assets. On December 31, 2001 the Company signed an
amendment to the Zindart Loan and Security Agreement, which was contingent upon
the closing of an equity investment by January 31, 2002, under which Zindart
will allow $400,000 of the outstanding balance to be converted to common stock
of the Company. This contingency was met and the Company recorded the
conversion in January 2002. Additionally, under this amended agreement,
Zindart agreed to cancel $400,000 of the outstanding principal. The Company
expects this $400,000 in principal to be cancelled in the quarter ending
December 31, 2002 upon the issuance of the common stock. Under this agreement
there has been a change in the repayment terms, commencing August 31, 2002.
The remaining balance of $1,250,000 (after taking into consideration the
conversion and cancellation) will bear interest at 5% above LIBOR and will be
repaid in 24 equal installments, with final payment due on July 31, 2004. At
September 30, 2002, the Company had an outstanding indebtedness of $1,546,000
and was in compliance with all financial covenants.

Note 9  Discontinued Operations

The Company had been experiencing deteriorating sales and profits from its
video division since its acquisition. As a result of the deteriorating sales
and a change in business goals, the Company evaluated the future viability of
its video division. On February 12, 2002, the board of directors approved a
formal plan to discontinue the operations of FFM by either sale or abandonment
within 90 days. On April 8, 2002, the Company closed the sale of FFM in
accordance with the terms of an asset purchase agreement, dated March 29, 2002,
with the FFM Acquisition Corp (FFMAC), a wholly owned subsidiary of Kanakaris
Wireless. At the closing, FFMAC acquired all the assets, excluding cash on
hand, and assumed the liabilities of FFM. At the closing, the Company received
$255,000 with the balance of $261,000 to be paid contingent on the collection
of FFMs accounts receivables outstanding at the time of closing. As these
receivables are collected, the Company will receive 42.5% of each dollar up to
a maximum of $261,000. As of September 30, 2002, the Company has received
$159,000 towards the outstanding FFM accounts receivables. The Company has
recorded the discontinued operation as of December 31, 2001 and restated all
prior periods in accordance with EITF 95-18. The Company

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included in Note 19 of Notes to Consolidated Financial Statements in its Form
10K filing for the year ended December 31, 2001 quarterly results restated as
to reflect discontinued operations. Certain reclassifications have been made to
2001 figures to conform to the amounts presented for 2002.

Note 10  New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. A
principal effect will be the prospective characterization of gains and losses
from debt extinguishments used as part of an entitys risk management strategy.
Under SFAS No. 4, all gains and losses from early extinguishment of debt were
required to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. SFAS No. 145 eliminates SFAS No. 4.
As a result, most gains and losses from extinguishment of debt will not be
classified as extraordinary items unless they meet much more narrow criteria in
APB Opinion No. 30. SFAS No. 145 may be adopted early, but is otherwise
effective for fiscal years beginning after May 15, 2002, and must be adopted
with retroactive effect. The Company is determining the effect of SFAS No.
145.

In September 2002, The FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The
Company will adopt the provisions of SFAS No. 146 for restructuring activities
initiated after December 31, 2001. SFAS No. 146 requires that the liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of a companys commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured and recorded
at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing
future restructuring costs as well as the amount recognized. Adoption of this
standard will not have any immediate effect on the Companys consolidated
financial statements.

Note 11  Subsequent Events

Re-Incorporation in Delaware

At the Companys annual meeting of shareholders held on October 28, 2002,
shareholders approved a proposal to change the Companys state of incorporation
from the State of California to the State of Delaware. The company expects
this change in incorporation to be concluded by December 31, 2002.

Increase in Authorized Shares

At the Companys annual shareholders meeting, shareholders adopted a resolution
which amended the Companys Certificate of Incorporation to increase the number
of authorized share of common stock of the Company from 12,000,000 shares, no
par value to 30,000,000 shares, no par value and to increase the number of
authorized shares of preferred stock from 3,000,000 shares, no par value to
8,500,0000 shares, no par value.

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2002 Stock Option Plan

At the Companys annual meeting of shareholders, held on October 28, 2002, the
Companys shareholders approved the Companys adoption of the 2002 Stock Option
Plan. Under the plan, up to 800,000 shares of the Companys Common Stock may
be issued to attract and retain qualified persons, such as directors,
employees, officers, agents, consultants and independent contractors and to
provide additional incentive for such persons to exert maximum effort for the
success of the Company. Options issued under the plan may be either Incentive
Stock Options or Non-Qualified Stock Options. The exercise price per share of
any Incentive Stock Option shall not be less than the fair market value of the
shares on the date of grant; provided, however that the exercise price of any
option granted to an eligible stockholder owning more than 10% of the
outstanding common stock may not be less than 110% of the fair market value of
the shares underlying such option on the date of the grant. The maximum period
in which an Incentive Stock Option is exercisable is ten years from the date of
grant, however for stockholders holding more than 10% of the outstanding stock;
the exercise period is limited to five years from date of grant. The exercise
price of any Non-Qualified Stock Option shall be determined by the plan
administrator on the date of the grant.

New Bank Financing

On November 11, 2002 the company signed a credit and security agreement with
Wells Fargo Business Credit, Inc. whereby the company will be provided with a
$2,500,000 revolving line of credit secured by the assets of the company.
Borrowings under the line are restricted in amount based upon the levels of
eligible accounts receivable. The note matures on November 11, 2005 and bears
interest at the rate of prime plus 2%, subject to downward adjustment annually
based upon the achievement, by the company, of certain levels of profitability.
The agreement includes several covenants including minimum interest payments
and prepayment charges. Proceeds of the loan were used to pay off the
outstanding indebtedness, in the amount of $1,058,294 plus accrued interest,
under the terms of the term loan payable to Republic Credit Corporation, Linc
Acquisition Group and for general working capital use. The early pay off to
Republic included a $50,000 discount and a charitable donation of the Companys
books valued at $25,000 over a 24 month period from the date of the payment.

Note 12  Contingencies

In the ordinary course of business the Company is subject to threats of
litigation which arise from time to time from various sources. Although the
Company has not been named a party in any action, the Company is aware of
several claims from third parties relating to the sale of Fast Forward
Marketing, which the Company is currently reviewing. The Company may incur
certain legal fees in order to defend against these claims, however these
amounts are not currently measurable. Management currently believes that these
matters will not have a material adverse effect on the Companys financial
statements.

In October, 2002, the company uncovered an irregularity involving the
misappropriation of customer remittances by an employee. Our current
investigation indicates that the amount of the misappropriation is not material
to the financial statements. The examination of the books and records are
undergoing further review. The Company cannot currently estimate the amount of
potential future adjustments, if any, until the investigation is completed.

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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

This Report on Form 10-Q contains forward-looking statements and includes
assumptions concerning the Companys operations, future results and prospects.
These forward-looking statements are based on current expectations and are
subject to a number of risks, uncertainties and other factors. In connection
with the Private Securities Litigation Reform Act of 1995, the Company provides
the following cautionary statements identifying important factors which, among
other things, could cause the actual results and events to differ materially
from those set forth in or implied by the forward-looking statements and
related assumptions contained in this Section and in this entire Report. Such
factors include, but are not limited to: product demand and market acceptance
risks; the effect of economic conditions; the impact of competitive products
and pricing; changes in foreign exchange rates; product development and
commercialization difficulties; capacity and supply constraints or
difficulties; the Companys working capital deficit; general business and
economic conditions; and changes in government laws and regulations, including
taxes.

GENERAL

Intervisual Books, Inc. (the Company) creates, produces and distributes
interactive and three-dimensional childrens education novelty books. These
products include picture books, playsets, board books, pop-up, lift-a-flap,
story and series books. The Companys books incorporate dimensional and
moveable features which require hand-assembly in the manufacturing process.
Some titles require the incorporation of such materials as plush, plastic
novelty elements and electronic audio chips into the finished books.

In our packaging segment, the majority of the Companys concepts and ideas for
books and formats are generated internally by the in house creative and
editorial departments. We also leverage our experience and external talent pool
to augment our core creative group, which comprises designers, paper engineers
and illustrators. After the Company conceives a new book format, the creative
team builds a selling sample which is offered for sale by the Company to
partner US and international publishers. If an agreement is reached, the
Company and the publisher sign a co-publishing contract which stipulates that
the publisher will purchase the title with exclusive rights to sell books in
the English and foreign languages to the book trade for generally a two to four
year period. Foreign publishers will also have similar rights to sell books to
the book trade in their language within their country. Under the terms of the
contract, the Company manufactures these titles for both domestic and
international publishers in over 25 countries and 18 different languages.

The Company is continuing to build its educational novelty imprint, Piggy Toes
Press. The Company creates and distributes interactive childrens novelty
books through domestic and international sales channels using a combination of
in-house sales management and an independent book and gift representative
network. The Company has been successful in increasing market penetration into
the traditional chain bookseller and building long term distribution or
planogram space, in the mass merchant and specialty/gift markets. This is
based on the success of the Piggy Toes moderately priced line, which includes
such titles as Ten Little Ladybugs, What Makes a Rainbow, and the Icky
Sticky series. The goal is to continue creating an innovative frontlist and
backlist with a combination of core novelty books and established licensed
properties. The Companys self-publishing program is in its fifth year and the
results to date are favorable. The warehousing and order fulfillment for the

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publishing business is being handled by two independent companies located in
University Park, Illinois, and Chino, California.

The Company does not engage in any of its own printing, binding, hand assembly,
or manufacturing. These services are contracted for with independent printers
in Hong Kong, Singapore, and Thailand. The Company supplies its printers with
artwork, color-separated materials and complete sample materials to serve as
guides for hand-assembly.

CRITICAL ACCOUNTING POLICIES

The Company believes the following represent its critical accounting policies:

Sales Returns and Allowance for Doubtful Accounts

The preparation of financial statements requires our management to make
estimates and assumptions that affect the reported amount of assets at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Specifically, our management must make estimates
of potential future product returns related to current period product revenue.
Management analyzes historical returns, current economic trends, and changes in
customer demand and acceptance of our products when evaluating the adequacy of
the sales returns. Significant management judgments and estimates must be made
and used in connection with establishing the sales returns in any accounting
period. Material differences may result in the amount and timing of our
revenue for any period if management made different judgments or utilized
different estimates. The provision for sales returns amounted to approximately
$658,000 at September 30, 2002. Similarly, our management must make estimates
of the uncollectability of our accounts receivables. Management specifically
analyzes accounts receivable and analyzes historical bad debts, customer
concentrations, customer credit-worthiness, current economic trends and changes
in our customer payment terms when evaluating the adequacy of the allowance for
doubtful accounts. The Companys allowance for doubtful accounts balance at
September 30, 2002 was approximately $118,000. The accounts receivable balance
at September 30, 2002 was approximately $4,368,000, net of sales returns of
$658,000 and allowance for doubtful accounts.

Capitalized Production Costs

The Company capitalizes production costs by title. Production costs include
costs for design, art, editorial services, paper engineering, dies and color
separation associated with books. The Company amortizes these costs using the
sum-of-the-years-digits method over a five year projected sales life.
Annually, the Company evaluates these accumulated costs for recoverability
against estimated future sales of the related product. For the first nine
months of 2002 and 2001, the Company capitalized $633,000 and $837,000, and the
balance is $2,643,000 and $2,944,000, net of accumulated amortization. To the
extent that the actual sales life of a title differs from projected sales life,
amortization expense may be understated or overstated.

Inventories

The Companys inventory is valued at the lower of cost or market. The Company
continually reviews the book value of discontinued books to determine if these
items are properly valued. The Company

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identifies these items and assesses the ability to dispose of them at a price
greater than cost. If it is determined that cost is less than market value,
then cost is used for inventory valuation. If market value is less than cost,
then the Company writes down the related inventory to that value. The Company
also continually evaluates the composition of its inventory and identifies
slow-moving inventories. Inventory items identified as slow-moving are
evaluated to determine if reserves are required. Generally, the Company does
not experience issues with obsolete inventory due to the nature of its
products. If the Company is not able to achieve its expectations of the net
realizable value of the inventory at its current value, the Company would have
to adjust its reserves accordingly. The reserves on inventory at September 30,
2002 are approximately $422,000.

RESULTS OF OPERATIONS

Net sales for the three and nine month periods ended September 30, 2002 were
$4,845,000 and $10,486,000 as compared to $4,952,000 and $11,259,000 for the
prior year. This decrease of $107,000 for the third quarter of 2002 resulted
from a decrease of $388,000 in packaging sales partially offset by an increase
of $281,000 in self-publishing sales. The decrease of $773,000 for the nine
month period can be attributed to a $1,560,000 decrease in packaging sales
partially offset by a $787,000 increase in self-publishing sales. The lower
packaging sales for the three and nine months resulted mainly from
approximately $1.5 million in Harry Potter sales in the second and third
quarters of 2001 not duplicated in 2002. Self-publishing sales were higher
mainly due to increases in new titles into the traditional chain booksellers
and increased shelf space for our core titles with certain mass market
retailers.

Gross profit margin for the three and nine month periods ended September 30,
2002 was 35.1% and 37.2% as compared to 24.2% and 26.7% for the same periods of
the prior year. This rise in gross profit margin for both periods resulted
from a 8% increase in profit margin on packaging sales and an 7% increase in
profit margin on self-publishing sales. Increased margins resulted primarily
from improved pricing from printers and increased selling prices. Cost of sales
relating to the book sales consists primarily of manufacturing, book
development amortization and royalties.

Selling, general and administrative expenses for the three and nine month
periods ended September 30, 2002 were $1,242,000 and $3,553,000 as compared to
$1,011,000 and $2,965,000 for the comparable periods of the prior year,
increases of $231,000 for the quarter and $588,000 for the nine months.
Personnel expenses were $561,000 and $1,707,000 for the three and nine month
periods ended September 30, 2002 as compared to $406,000 and $1,314,000 for the
comparable periods of 2001. The increases of $155,000 and $393,000 for the
third quarter and nine months of 2002 resulted mainly due to higher salaries,
contract services and to inclusion of non-recurring bonuses related to the
completion of the preferred stock financing, as well as accruals for year end
bonuses. Selling expenses were $320,000 and $851,000 for the three and nine
month periods ended September 30, 2002 as compared to $265,000 and $786,000 for
the prior year. These increases of $55,000 for the quarter and $65,000 for the
nine month period as compared to the prior year resulted primarily from
increases in marketing and commission expenses offset partially by decreases in
delivery, sample and show expenses. Administrative expenses were $361,000 and
$995,000 for the three and nine month periods ended September 30, 2002 as
compared to $340,000 and $865,000 for the same periods of 2001. Administrative
expenses were up $21,000 for the quarter and $130,000 for the nine month
period. The increase for the nine month period was primarily a result of
increased insurance expense, moving related expenses, accounting fees, and bad
debt expenses partially offset by a decrease in rent.

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Interest expense for the three and nine month periods ended September 30, 2002
was $53,000 and $172,000 as compared to $107,000 and $426,000 for the prior
year. The decreases of $54,000 for the quarter and $254,000 for the nine
months was primarily attributable to lower average outstanding balances this
year as compared to last year due to principal payments made to the Companys
lenders.

The Company has realized its deferred income tax benefit during the quarter
ended September 30, 2002. At December 31, 2001, the Company had federal net
operating loss carryforward available to offset future taxable income of
approximately $5,926,000 that expire on various dates beginning in 2018 through
2021. As of September 30, 2002 the remaining deferred tax asset is fully
reserved.

Net income (loss) before extraordinary items and discontinued operations for
the three and nine month periods ended September 30, 2002 were $407,000 and
$176,000 as compared to net income of $83,000 and net loss of ($366,000) for
the same periods of the previous year. The net income for the quarter as
compared to the prior year resulted primarily from higher profit margins on
both packaging and self-publishing sales. The reduction in the net loss for the
nine month period was also primarily a result of higher profit margins. Lower
interest expense also affected both periods.

The Company recorded net income available to common shareholders of $157,000
and $1,114,000 for the three and nine month periods of 2002 versus net losses
of $80,000 and $576,000 for the same periods of 2001. The net income for 2002
included extraordinary income of $1,403,000 relating to accounts payable
discounts from its printers and a deemed dividend of $713,000 which was
partially offset by provision for income taxes of $250,000. The Company
recorded a deemed dividend of $713,000, which related to the beneficial
conversion of the convertible preferred stock and the option value. (See Note
4)

LIQUIDITY AND CAPITAL RESOURCES

The Companys cash and cash equivalents decreased by $761,000 to $505,000 at
September 30, 2002 from $1,266,000 at December 31, 2001. At September 30, 2002,
working capital deficit was ($325,000) compared to ($4,327,000) at December 31,
2001. The decrease in cash was primarily from operating and investing
activities offset by cash received as a result of the close of the preferred
stock financing transaction and the sale of the Companys video division.

Net cash used in operations was $1,856,000 for the nine months ended September
30, 2002 as compared to $1,283,000 provided by operations for the corresponding
period of the previous year. The $3,139,000 change in cash from operations
compared to the corresponding period was primarily attributable to increases in
accounts receivable and inventory offset by a decrease in accounts payable.
Net cash used in investing activities amounted to $675,000 as compared to
$861,000 during the same period in 2001. This decrease in cash used is
primarily from a decrease in production costs for the nine months of 2002
versus the same period of 2001. Net cash provided by financing activities for
the nine months of 2002 was $1,770,000 versus $550,000 used in 2001. The
majority of the cash provided was related to the net proceeds from the
preferred stock financing arrangement completed in January 2002. Additional
cash was received upon the sale of the Companys video division in April 2002.
These cash proceeds were partially offset by payments on the Companys bank
line of credit.

As of December 31, 2001, the Company signed an amendment to its bank loan
agreement. Under this amendment, the Company paid a principal payment of
$500,000 on December 31, 2001 and agreed to an increase in monthly principal
payments to $25,000 per month. Under this amendment, the outstanding

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principal amount is due on December 31, 2002 and certain financial covenants
were amended. On March 22, 2002, this Company was notified that its bank loan
agreement had been assigned to Linc Acquisition One, LLC. On April 4, 2002,
the Company signed a Consent and Waiver Agreement with the lender giving it
authorization to complete the sale of the Companys video division, Fast
Forward Marketing. Under this agreement, the Company on April 8, 2002 paid the
Lender $175,000 as a reduction to its outstanding indebtedness. This agreement
also requires that as the Company is paid additional cash from the collection
of FFMs receivables; it will pay the Lender 45% of each dollar received up to
a maximum of $112,500. As of September 30, 2002, the Company has paid the
Lender $71,706 from the collection of FFMs receivables. As of September 30,
2002, the Company had an outstanding indebtedness of $1,158,000 and was in
compliance with all financial covenants.

On November 11, 2002 the company signed a credit and security agreement with
Wells Fargo Business Credit, Inc. whereby the company will be provided with a
$2,500,000 revolving line of credit secured by the assets of the company.
Borrowings under the line are restricted in amount based upon the levels of
eligible accounts receivable. The note matures on November 11, 2005 and bears
interest at the rate of prime plus 2%, subject to downward adjustment annually
based upon the achievement, by the company, of certain levels of profitability.
The agreement includes several covenants including minimum interest payments
and prepayment charges. Proceeds of the loan were used to pay off the
outstanding indebtedness, in the amount of $1,058,294 plus accrued interest,
under the terms of the term loan payable to Republic Credit Corporation, Linc
Acquisition Group and for general working capital use. The early pay off to
Republic included a $50,000 discount and a charitable donation of the Companys
books valued at $25,000 over a 24 month period from the date of the payment.

The Company has a subordinated credit facility with Zindart Limited. The
credit facility is subordinated to the term loan discussed in Note 7 and is
secured by the Companys assets. On December 31, 2001 signed an amendment to
the Zindart Loan and Security Agreement, which was contingent upon the closing
of an equity investment by January 31, 2002, under which Zindart will allow
$400,000 of the outstanding balance to be converted to common stock of the
Company. This contingency was met and the Company recorded the conversion in
January 2002. Additionally, under this amended agreement, Zindart agreed to
cancel $400,000 of the outstanding principal. The Company expects this $400,000
in principal to be cancelled in the quarter ending December 31, 2002 upon the
issuance of the common stock. Under this agreement there has been a change in
the repayment terms, commencing August 31, 2002. The remaining balance of
$1,250,000 (after taking in consideration the conversion and cancellation) will
bear interest at 5% above LIBOR and will be repaid in 24 equal installments,
with final payment due on July 31, 2004. At September 30, 2002, the Company
had an outstanding indebtedness of $1,546,000 and was in compliance with all
financial covenants.

On December 31, 2001, the Company signed a financing agreement with Intervisual
Partners LLC to issue up to 1,825,397 shares of Series A convertible preferred
stock for an aggregate purchase price of $2,100,000 of cash. This financing
agreement had several contingencies and was subject to two closings. The cash
was received in two closings, the first closing was on January 8, 2002 upon
which the Company received $500,000 and the second closing was on January 31,
2002 upon which the Company received $1,600,000. Following the first and
second closings, 396,825 and 1,269,841 shares, respectively, of preferred stock
were issued. The preferred stock is convertible at an initial price of $.63
subject to adjustments based on the agreement. In connection with this
agreement, Intervisual Partners LLC was entitled to appoint a majority of the
Companys Board of Directors. The Company recorded a beneficial conversion on
the convertible preferred stock of $440,000. This amount was recorded as a

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deemed dividend at March 31, 2002. The preferred stock agreement has a clause
which requires the Company to issue up to 158,730 additional shares depending
on the final adjusted audited loss for the year ended December 31, 2001.
Intervisual Partners LLC also has the option to purchase up to an additional
2,049,804 shares of Series A preferred stock at a purchase price ranging from
$1.26 to $1.32. The Company valued this option at $273,000 and recorded it as
a deemed dividend. Finally, Intervisual Partners LLC received a warrant to
purchase additional shares of the Companys common stock. The warrant shall be
determined in five separate tranches; one tranche at each of the next five
anniversary dates of the First Closing. (See Note 4)

As of November 1, 2002, the Company did not have commitments for any material
capital expenditures for 2002 or beyond.

We may face disruption in the flow of our products to customers based upon
labor unrest threatened on the West Coast of the United States. Our business
depends on the free flow of products and services through the channels of
commerce. We may also face interruption of production and services due to
increased security measures in response to terrorism. Recently, in response to
terrorists activities and threats aimed at the United States, transportation,
mail, financial and other services have been slowed or stopped altogether.
Further delays or stoppages in transportation, mail, financial or other
services could have a material adverse effect on our business, results of
operations and financial condition. Furthermore, we may experience an increase
in operating costs, such as costs for transportation, insurance and security as
a result of these activities and other potential activities. We may also
experience delays in receiving payments from customers and others that have
been affected by terrorist and other activities. Currently the US is being
adversely affected by an economic downturn which could adversely impact our
results of operations, impair our ability to raise capital or otherwise
adversely affect our ability to grow our business.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

All sales by the Company are denominated in US dollars and, accordingly, the
Company does not enter into hedging transactions with regard to any foreign
currencies. Currency fluctuations can, however, increase the price of the
Companys products to its foreign customers which can adversely impact the
level of the Companys export sales from time to time. The majority of the
Companys cash equivalents are bank accounts and money markets, and all of the
Companys debt is variable rate. Therefore, the Company does not believe it
has significant market risk exposure with regard to its financial instruments.




Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief
Accounting Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures, as defined in Exchange Act Rules
13a-14(c) and 15d-14(c). Based upon that evaluation, the Companys Chief
Executive Officer and Chief Accounting Officer concluded that the Companys
disclosure controls and procedures are effective in enabling the Company to
record, process, summarize and report information required to be included in
the Companys periodic SEC filings within the required time period.

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There have been no significant changes in the Companys internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.

16



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##### Table of Contents






PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

|    |  |                                                 
|--- |  | ------------------------------------------------
|(a) |  | Exhibits required by Item 601 of Regulation S-K 
|    |  | 99.1  Certification of Chief Executive Officer 
|    |  | 99.2  Certification of Chief Accounting Officer
|   
|(b) |  | Reports on Form 8-K                             
|    |  | None                                            




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





| | INTERVISUAL BOOKS, INC.
| | -----------------------

| |  |     |  |                         
| |  | --- |  | ------------------------
|
|
| |  | BY: |  | /s/  Laurence Nusbaum   
| |  |     |  |                         
| |  |     |  | Laurence Nusbaum        
| |  |     |  | Chief Executive Officer 
|
|
| |  | BY: |  | /s/  Gail A. Thornhill  
| |  |     |  |                         
| |  |     |  | Gail A. Thornhill       
| |  |     |  | Chief Accounting Officer

Date:   November 19, 2002

17



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CERTIFICATION
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

I, Laurence Nusbaum, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Intervisual Books, Inc.;                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I (herein the Certifying Officers)
are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                   



| | a) |  | designed such internal
controls to ensure that
material information
relating to the
registrant, including its
consolidated subsidiaries
(collectively the
Company), is made known
to the Certifying
Officers by others within
the Company, particularly
during the period in
which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the
effectiveness of the
registrants internal
controls as of a date
within 90 days prior to
the filing date of this
quarterly report (the
Evaluation Date); and                                                                                                                                                 
|
| | c) |  | presented in this
quarterly report the
conclusions of the
Certifying Officers about
the effectiveness of the
disclosure controls and
procedures based on our
evaluation as of the
Evaluation Date;                                                                                                                           



|5. |  | The registrants Certifying Officers have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of the
registrants board of directors:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant
deficiencies (if any) in
the design or operation
of internal controls
which could adversely
affect the registrants
ability to record,
process, summarize and
report financial data and
have identified for the
registrants auditors any
material weaknesses in
internal controls; and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not
material, that involves
management or other
employees who have a
significant role in the
registrants internal
controls; and                                                                                                                                                 



|6. |  | The registrants Certifying Officers have indicated in this quarterly report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 19, 2002

/s/ Laurence Nusbaum
Laurence Nusbaum
Chief Executive Officer

18



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CERTIFICATION
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

I, Gail A. Thornhill, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Intervisual Books, Inc.;                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I (herein the Certifying Officers)
are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                   



| | a) |  | designed such internal
controls to ensure that
material information
relating to the
registrant, including its
consolidated
subsidiaries,
(collectively the
Company) is made known
to the Certifying
Officers by others within
the Company, particularly
during the period in
which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the
effectiveness of the
registrants internal
controls as of a date
within 90 days prior to
the filing date of this
quarterly report (the
Evaluation Date); and                                                                                                                                                 
|
| | c) |  | presented in this
quarterly report the
conclusions of the
Certifying Officers about
the effectiveness of the
disclosure controls and
procedures based on our
evaluation as of the
Evaluation Date;                                                                                                                           



|5. |  | The registrants Certifying Officers have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of the
registrants board of directors:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant
deficiencies (if any) in
the design or operation
of internal controls
which could adversely
affect the registrants
ability to record,
process, summarize and
report financial data and
have identified for the
registrants auditors any
material weaknesses in
internal controls; and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not
material, that involves
management or other
employees who have a
significant role in the
registrants internal
controls; and                                                                                                                                                 



|6. |  | The registrants Certifying Officers have indicated in this quarterly report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 19, 2002

/s/ Gail A. Thornhill
Gail A. Thornhill
Chief Accounting Officer

19